Why Is Brinker International (EAT) Up 6.2% Since Last Earnings Report?

It has been about a month since the last earnings report for Brinker International (EAT). Shares have added about 6.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Brinker International due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Brinker's Q4 Earnings Miss, Revenues Beat Estimates

Brinker reported fourth-quarter fiscal 2018 results, wherein earnings missed the Zacks Consensus Estimate but revenues surpassed the same. Adjusted earnings of $ 1.19 lagged the consensus mark of $ 1.20. However, the bottom line increased 9.2% from the year-ago quarter on higher revenues.

Quarterly revenues were $ 817.1 million, which outpaced the consensus estimate of $ 816 million. The top line also increased a meager 0.8% on a year-over-year basis.

Brand Performances

Brinker primarily engages in the ownership, operation, development and franchising of various restaurant brands under the names, Chili’s Grill & Bar (Chili’s) and Maggiano’s Little Italy (Maggiano’s).

Chili's

Revenues at Chili’s summed $ 688.2 million in the quarter, up 0.8% from the prior-year quarter. The upside was driven by rise in comps and an increase in capacity in the United States.

The brand’s company-owned comps rose 0.6% owing to a 0.8% increase in both traffic and mix shift, partially offset a 1% decline in pricing. However, comps compared favorably with the prior-quarter decline of 0.4% and year-ago drop of 2.2%.

Comps at Chili's franchised restaurants decreased 1.4% compared with a 1.7% decline in the year-ago quarter and a 2.1% drop in the last reported quarter. At international franchised Chili’s restaurants, comps declined 2.9% compared with the prior quarter’s decrease of 4.2% and year-ago quarter’s decline of 0.2%. Meanwhile, the same fell in the domestic franchised units by 0.5% compared with the year-ago quarter’s decline of 0.2% and the third quarter’s decline of 3.2%.

At Chili's, domestic comps (including company-owned and franchised) inched up 0.4% against the prior quarter’s drop of 1.1% and the year-earlier quarter’s decline of 1.7%.

Maggiano's

Maggiano's company sales rose 0.3% year over year to $ 103.2 million primarily owing to an increase in comps.

Comps grew 0.3% in the quarter compared with gain of 0.5% in the year-ago quarter, courtesy of a 1.7% increase in pricing and a 0.2% rise in mix, partially offset by a 1.6% decline in traffic. Markedly, comps had increased 0.5% in the third-quarter fiscal 2018.

Operating Results

Total operating costs and expenses increased roughly 2.2% to nearly $ 746.7 million compared with $ 730.4 million in the year-ago quarter. While the cost of sales margin expanded 40 basis points (bps), restaurant labor margin increased 100 bps year over year.

Restaurant operating margin, as a percentage of company sales, was 15.9% compared with 17% in the prior-year quarter.

Balance Sheet

As of Jun 27, 2018, cash and cash equivalents were $ 10.9 million compared with nearly $ 9 million on Mar 29, 2017.

Long-term debt was $ 1.5 billion as of Jun 27, 2018, compared with $ 1.32 billion as of Jun 28, 2017. Total shareholders’ deficit in the quarter was $ 1.3 billion compared with $ 1.4 billion as of Jun 28, 2017. Capital expenditures as of Jun 27, 2018, were $ 101.3 million. Free cash flow summed $ 183.2 million.

Management approved a quarterly dividend of 38 cents per share of the company’s common stock in the fourth quarter, which is payable Sep 27 to shareholders of record as of Sep 7.

2019 Guidance

For the full fiscal year, Brinker expects revenues to increase in the range of nearly 1-2.25%. Comps are anticipated to increase within the 0.75-1.75% band. However, restaurant operating margin is expected to contract 160-180 bps year over year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -11.39% due to these changes.

VGM Scores

Currently, Brinker International has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren’t focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Brinker International has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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